Effect on Budgeted Fixed Manufacturing Cost Rate Homework Help

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About fixed manufacturing cost rate

This manufacturing cost rate is called fixed because they remain the same in the total amount despite possible changes in the total volume of production. No matter the increase or any decrease this cost rate remains completely static.

Some examples where the cost rate of manufacturing remains fixed are:

1. The salary of production managers and employees
2. Depreciation
3. Costs involved in training personnel, and
4. Rent on production facilities.

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These rates are expressed on a monthly or annual basis through the expenses. The amounts for the fixed cost rates are extracted through subtracting a marginal amount from each product’s total cost.

Various effects on Budgeted Fixed Manufacturing Cost Rate

Most organisations establish a budgeted fixed manufacturing cost rate which is applied for the full financial year and therefore the term, fixed rate. There are steps to finding this budgeted rate and each step has a different effect on the accounts of a company. Effect on budgeted fixed manufacturing cost rate homework help explains the effects as follows:

• At the beginning of the year, a prediction of the fixed cost rates is made. The effect this step has on accounts is that the estimate is prepared which the companies can follow as the year progresses.
• A number oflabour hours, which need to be invested, in making sure that the product cost rates do not rise or undergo drastic change have to be worked out. This helps in figuring out the price of each commodity and has a direct effect on the budgeting cost rates.
• The budgeted fixed manufacturing cost rate must ultimately be found out using the formula. Expected fixed manufacturing overhead for the financial year divided by expected total direct labour costs for the same year. The effect of this step is that the level of accuracy of the company increases. This could in turn boost profits for the organisation.

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